Microsoft Bid Damaging Business, Yahoo! Says

Microsoft's $44.6 billion hostile takeover bid has damaged its business, Yahoo! says in its annual report. Dealing with the bid, which the company's board initially rejected, has distracted its board of directors, made it difficult to retain key employees, stirred up shareholders, and scared away potential advertisers. Meanwhile, the company faces seven shareholder lawsuits, all of which claim that Yahoo! harmed shareholders by not accepting Microsoft's takeover bid.

"Microsoft's unsolicited acquisition proposal has created a distraction for our management and uncertainty that may adversely affect our business," the report reads, while outlining best and worst-case scenarios. In a best-case scenario, the Microsoft bid has distracted Yahoo!'s executives, requiring them to expend considerable time and effort evaluating Microsoft's bid as well as rival offers and other alternatives. Worst case, the bid will lead to an employee exodus and cause advertisers to abandon the company.

Of course, Yahoo!'s annual report doesn't really mention that all these dire consequences are at least partially caused by its own inadequate behavior over the past several years, during which the company has stumbled against Google, the market leader. And many Yahoo! shareholders have reacted poorly to the company's decision to reject Microsoft's offer. Yahoo! now faces seven shareholder lawsuits, four in California and three in Delaware, alleging that the company ignored shareholder needs by not negotiating with Microsoft. The software giant's $44.6 billion offer represented a 62 percent premium over Yahoo!'s stock price at the time.

Microsoft has refused to raise the offer for Yahoo!, and has instead moved to overthrow Yahoo!'s board of directors. The deadline for this latest gambit is March 14, when Yahoo!'s notice date period for electing a new board expires.